Marriot, Starwood and the Power of Distribution

Excited by today’s announced $12.2 billion purchase of Starwood Hotels by Marriott? Nervous? Confused? Not much of a need for that in most cases. The totality of change is likely to be relatively small for the heads in all those beds. And it will be a lot of beds. The combined company will have something on the order of 1.1 million rooms in 5,500+ properties across 30 brands. Some of those brands may consolidate a bit but expect that, for the most part, there will still be a ton of properties to choose from at varying price points, service levels and quality levels. Really not much to get excited about on that front.

The loyalty programs are very different between the two brands and that is likely where things will change the most. Status tiers, earning & redemption rates, partners and lifetime benefits all vary. Eventually that will all be hashed out. I’d like to believe that the new company will respect the fact that the Starwood Preferred Guest points are nominally worth ~2-2.5x the Marriott Rewards points and account for that in the program merger. But no guarantees. Oh, and don’t forget that SPG has partnered with Delta while Marriott has United for reciprocal benefits and earnings. There will be shakeups on the loyalty side but it will not drive the deal one way or another.

But let’s get to the nitty gritty about those who are the most affected by this move: OTAs and Corporate Contracts. The move is a massive consolidation on the distribution front. The combined pair push north of $40bn in bookings annually, still trailing Priceline and Expedia but now exceeding Carson Wagonlit and roughly doubling IHG, according to data from Euromonitor (see chart in this TNooz piece). Marriott has been extremely aggressive in managing its distribution partnerships, working to control costs while providing the differentiated details which drive bookings.

Much like airlines the hotels continue to struggle with the legacy platforms for product aggregation and distribution; it is nearly impossible to highlight the local or unique features a hotel offers through these systems. Some airlines are starting to see success on this front and some hotels are similarly poised to do so, assuming they can make the system work. By taking the large number of diverse brands in the combined company and integrating them into a single, powerful distribution platform the new Marriott has the potential to upset the booking process. Or at least tweak it in the company’s favor.

On the corporate contract front being able to offer more brands and locations is almost certainly a good thing. It will be interesting to see if the new Marriott tries to use that size to reduce discounts or otherwise drive better revenue numbers. There is still competition in the market so the new company will not have care blanche in dictating such terms.

3 Responses

Agreed. I’m inclined to think Chase will win given it represents the larger company’s portfolio but there are some saying that the AmEx relationship is far more lucrative right now. If that’s the case then expect to see AmEx continue to run the cards. Also, I would expect that AmEx is willing to fight on this one given other recent portfolio losses. Yes, it still has Delta in the travel space and a secondary Hilton card but really not much else.